New Haven Register (New Haven, CT)
How CT spends federal relief will shape economic future
With billions of dollars of federal coronavirus relief pouring into Connecticut, leaders face an unprecedented balancing test.
Most of this money will be used to enhance safety and undo the economic chaos caused by COVID-19. But Connecticut also is expected to fund new initiatives, transforming everything from health care, education, its workforce and infrastructure to better function in a post-pandemic world.
The challenge is to ensure that when the federal dollars run out in 2024, Connecticut’s economy will have recovered enough to pay for these new ventures and make this transformation permanent.
“There is no greater economic concern in our generation,” said Chris DiPentima, president and CEO of the Connecticut Business and Industry Association. “How we spend this money will determine what Connecticut does for the next two decades.”
Although stimulus payments of up to $2,800 per household, extended unemployment benefits and $350 billion in direct relief to states and municipalities grabbed most of the headlines involving the $1.9 trillion federal relief measure, there is so much more.
Funds are earmarked for education, workforce development, child care and other social services, rental assistance, and capital projects.
“Leaders and decisionmakers are going to have to be strategic and have an eye toward growth,” said Melissa McCaw, Gov. Ned Lamont’s budget director. “There’s a great opportunity here to think outside the box.”
The Lamont administration is committed to using the funds to reverse as much of the damage from the last 12 months as possible, McCaw said, but also to ensure Connecticut doesn’t get trapped in a downward economic spiral for years to come.
That means propelling job growth, ensuring housing stability and closing gaps in technology that limited many poor families’ access to health care and education, she said.
Step One for businesses: Keeping taxes down
The first step toward that goal involves stabilizing state finances.
Even with a robust stock market that mitigated the damage to the state’s finances, government spending is on pace to exceed revenues by $1.3 billion over each of the next two fiscal years — unless adjustments are made.
Connecticut has just over $3 billion in its rainy day fund. But Lamont and many others say a big chunk of the $2.6 billion from Washington, D.C., that goes directly into the state budget should be used to balance the books for the coming biennium.
That, in turn, would leave the rainy day fund intact and available to cover any shortfalls in 2024 and afterward — when the federal dollars run out.
The out-years could be a real problem if an October forecast from the University of Connecticut’s economic think-tank is correct. Economist Fred Carstensen warned that the state likely will struggle to recover employment, business productivity, personal income and state revenues past 2030.
Federal rules block states and municipalities from using this relief to cut taxes or to pay down their pension debt.
But that’s not a problem for DiPentima, because the No. 1 item on the business wish list, he said, is simply to keep state and municipal taxes stable for as long as possible. The threat of tax hikes, the CBIA has argued for years, is the singlelargest impediment against businesses adding new jobs.
Connecticut municipalities — which generally don’t have reserves anywhere close to the state’s — say the pandemic cost them
hundreds of millions of dollars in lost or deferred revenue.
Despite that hit, cities and towns recognize the latest round of federal aid “is bridge money to get to the other side” of the pandemic, said Joe DeLong, executive director of the Connecticut Conference of Municipalities.
DeLong said he’s confident communities will be cautious with spending the nearly $1.6 billion in federal relief headed their way.
But he also noted they’re coming off a decade during which the state frequently has reneged on promises to expand municipal aid as Connecticut grappled with huge pension debt.
If Lamont and the General Assembly want stable city and towns budgets when the federal aid runs out in 2024, DeLong said, that means more reforms for state employee and teacher pensions and other retirement benefits.
There’s more to bolstering Connecticut’s economy, though, than simply avoiding tax hikes.
The state will receive
$140 million for capital projects, and McCaw said the administration wants to use those dollars to transform Connecticut’s information technology infrastructure, to give businesses and workers more options to work remotely and function more efficiently.
These funds also can be invested in worker retraining and other workforce development initiatives. Coupled with $370 million available for community colleges and the rest of Connecticut’s higher education network, the state has a chance to return thousands
of the unemployed to jobs.
Connecticut still has more than 200,000 households receiving weekly unemployment benefits, and even after vaccinations largely have progressed, the state likely will have 150,000, said Don KlepperSmith, an economist with DataCore Partners.
While keeping taxes down is important, others argue that it is more important to help those who have suffered the most.
Besides providing stimulus payments up to $2,800 per household and extending federal unemployment benefits, the relief bill also enhances federal income tax cuts for the working poor, for low- and middleincome families with children.
It also increases and expands eligibility for premium subsidies for households that buy subsidized health insurance through the state exchange.
This was a crucial part of the measure, said U.S. Rep. Joe Courtney, D-2nd District, who said recipients of this tax relief will pump most of those dollars right back into the economy.
“This is pure stimulus in terms of consumer spending,” he said. “These are families that have bills to pay.”
Connecticut has scaled back its state income tax credits in recent years for the working poor and middle-class households, but it can’t afford to continue on this path if it wants a stable economy coming out of the pandemic, according to Yale Law School Professor Anika Singh Lemar, who teaches at the school’s community and economic development clinic.